OPINION
Why Africa cannot ignore credit ratings
By Mampho Modise
MAMPHO MODISE Post graduate researcher , University of Pretoria
Credit ratings provide an independent and objective assessment of the credit worthiness of countries and corporations
Three of the world ’ s major ratings agencies , Moody ’ s , Fitch and Standard & Poor ’ s ( S & P ), are reviewing South Africa ’ s credit rating . Mampho Modise explains the significance of the reviews .
What do the agencies look at in the process of reviewing a country ?
In their rating methodologies , rating agencies have developed rating criteria for assessing the performance of key macroeconomic and socioeconomic indicators . By assessing the indicators , the rating agencies are able to determine the borrower ’ s ability and willingness to honour debt obligations .
Rating criteria focus on the following components and indicators : Economic structure and performance : Real GDP , per capita income , headline inflation rate , gross investment as a percentage of GDP and gross domestic savings as a percentage of GDP . Government finances : Government revenue to GDP , government expenditure to GDP , gov- ernment debt to GDP , debt interest payment to revenue and the budget balance as a percentage of GDP . External payments and debt : Current account balance as a percentage of GDP , the ratio of external debt to GDP and level of official reserves . Susceptibility to event : Political risk ,
socioeconomic risk , external vulnerability risk and institutional independence . When reviewing the sovereign ratings , rating agencies hold discussions with various stakeholders in government , labour , civil society and the private sector . The reason the private sector is included is for the rating
18 Business Times Africa | 2016